Note: This article was originally published in May, 2015, but has been updated with current information as of October 24, 2017. This article is for informational purposes and is not meant to provide legal, regulatory, accounting, or tax advice.
2018 Tax Reform: Under the Tax Cuts and Jobs Act, signed into law on December 22, 2017, employers will no longer receive a business deduction for providing mass transit, commuter highway vehicle, or parking benefits to employees, except as required for ensuring the safety of an employee. However, state requirements remain in effect, and employees may continue to use their own pretax income for commuter benefits, via employer-provided salary reduction programs.
Commuter benefits are a simple way for both employers and employees to save money. Put in place to encourage the use of public transportation, these programs allow for employers and employees to use pre-tax dollars to pay for a variety of commuting expenses.
How does it work?
For employers and employees, benefits that qualify as “transportation fringe benefits,” under the law are not a part of an employee’s taxable wages. These commuter benefits are exempt from federal income and payroll taxes.
Under Federal Law, qualified transportation fringe benefits consist of:
In December, 2015, federal law equalized the maximum monthly amounts eligible for tax breaks for qualified parking and mass transit benefits. The 2018 federal monthly maximum for qualified transportation fringe benefits is $260 per month, per employee for any one, or combination of, commuter highway vehicle transportation and transit passes, as well as $260 per month, per employee for qualified parking.
(Note: the federal maximum will be adjusted annually to reflect cost-of-living by the IRS before the beginning of the year)
Employee income that is set aside for commuter benefits up to the federal maximum is not subject to federal income or payroll taxes.
Depending on how an employer offers commuter benefits, funds can be delivered to and used by employees in a number of different ways, including:
NOTE: In addition to federal law, you may also be eligible for state income and payroll tax incentives for commuter benefits, depending on your location. Some cities even require employers to provide commuter benefits to their employees under the law. Scroll down to find out more about commuter benefits in your state!
Commuter benefits programs are legally required in a growing number of locations. For instance, you must offer commuter benefits if you’re an employer:
Even if your business is outside these locations, companies and employees everywhere can reap the rewards of a pre-tax commuter benefits program.
If your business is located in the following states, you and your employees can save on federal and state income and payroll taxes:
While most states follow federal law, a handful of states treat commuter benefits a little differently for state income tax purposes. For instance:
If you’re an employee:
Employees can take advantage of commuter benefits if their company has a program. Ask your HR department—both you and your company will save money.
If you’re an employer:
There are numerous ways for employers to take advantage of pre-tax commuter benefits, based on their preferred levels of contribution and involvement. Depending on your location, you can contribute to your employees’ commuter benefits, have employees deduct commuter funds from their pay and purchase passes themselves, or offer a combination of the two, all pre-tax.
Setting up commuter benefits yourself can be time-consuming, so if you’re doing it alone, think about whether you have time for setup and admin or if you’d rather use an outside service, especially if you’d like to give employees the ability to set their own contribution preferences.
Zenefits helps companies easily offer commuter benefits* alongside other benefits accounts like FSAs (flexible spending accounts). With Zenefits, employees can individually allocate funds to parking and transit and spend them with Zenefits-issued debit cards, without any additional HR admin.
Interested in using Zenefits for commuter benefits? Setup is simple—let’s talk.
Already a Zenefits HRIS customer, and want to offer your employees commuter benefits? Simply log in and request to add this simple feature today.
*Zenefits does not support bicycle commuting benefits at this time.